BOE monetary policy preview

The pound has been the top performer among the majors over the past two months and it might gain a firmer footing if the Bank of England (BOE) chooses to not to ease policy. The pound is up 2.2 percent against the dollar since November, whereas the euro has declined by 4.6 percent, the Swiss franc has declined more than 3.5 percent and the yen has declined more than 12 percent.  BOE would announce monetary policy decision around 12:00 GMT.

• Monetary policy is one of the two major directional and volatility risks for the pound, the other being Brexit.

BOE policy and expectation –

• After the referendum this year, the Bank of England (BoE) has reduced rates by 25 basis points, introduced additional asset purchases of £60 billion, introduced £10 billion worth of corporate securities purchase, and £100 billion worth of targeted lending scheme, all to be funded via balance sheet expansion.

• Previously BoE governor Mark Carney indicated that he would refrain from further easing until the fiscal stance from the autumn statement clears up. Now, the autumn statement is done with, the market participants would be eager the central bank’s take on it.

Impact –

• As of now, the interest rate hike by the US Federal reserve last night is rattling the market, so without any further action, or strong words with further policy hints, BoE’s announcement unlikely to make much of an impact.
• We suspect that the pound might gain some grounds from BoE’s inaction.